Understanding The 50-20-30 Budgeting Rule

Do you know that budgeting involves more than just paying your bills on time? Preparing a budget helps you to determine how much you need to spend and on what. If you are having problems with budgeting, the 50-20-30 budgeting rule will help keep your spending in line with your savings goals.

Adults, especially young adults, are encouraged to follow the principles in this budgeting system. The sooner you know how to achieve a balanced budget, the sooner you can go to the next step where you can customize the rule to fit your own unique experiences and goals.

It is unfortunate that so many people are struggling with their finances and are in debt simply because they are not in the habit of applying the 50-20-30 rule. Budgeting is a simple task that can make your life much easier. You may need to make some adjustments with tweaks here and nudges there, but by following this budgeting system you are guaranteed to gain financial ground.

What is the 50-20-30 budgeting rule and how do you apply it in your world of personal finance?

Essentials – 50% Of Your Income

The budgeting rule states that you need to set aside 50% of your income to take care of the necessities in your life. It may seem like the percentage is high, but the truth is that the items that fall into this category makes it easy to understand why you need that much. What are essentials? Essentials are all expenses that you have to pay every month whether you work or not. Everyone has essentials to pay and the expenses include utility bills, transportation costs, food and housing. The 50% lets you adjust as you maintain a sound, balanced budget. Once you have calculated how much you need to set aside for essentials, it makes it easy to decide whether you can comfortably sustain your current lifestyle or need to adjust it.

Savings – 20% Of Your Income

You need to dedicate 20% of your total income toward savings. Savings are meant to help you when you need to clear debts or need money for a rainy day. Savings should be set aside immediately once you finish paying for essentials and you should never compromise. Consider savings as your get ahead money to help you live a frustration-free future. Young people tend to ignore this rule simply because they think they have all the time to save. The truth is the sooner you start applying this rule in your life, the sooner you will enjoy total financial freedom.

Personal – 30% Of Your Income

This last category in the budgeting rule can make a big difference in your budget. It involves the amount of money you spend on enhancing your lifestyle. It is unfortunate that so many people consider luxuries as a mandatory status. The truth is that we need to spend on personal items, but at the same time you need to decide whether spending on something is a luxury or a necessity. Once you have set aside 30% of your income, take some time to decide whether you really need to pay for an item or whether you can do without it. The less you spend in this category, the more progress you will make in terms of securing your future and paying down debt.

Before this budgeting rule can really start making a difference in your life, you may have to make lifestyle changes and sacrifices for the first few months. However, all these will be worth it since you will gain more financial freedom over time. Once you have enough savings, you can even send your loved ones money via Sharemoney to help out when they need your help.